Review of Direct Participation Programs for the Series 7 Exam
Direct participation programs (DPPs) are more commonly known as limited partnerships. DPPs raise money to invest in projects such as real estate, oil and gas, and equipment leasing. DPPs aren’t for everyone because investors (limited partners) need to be prescreened by the registered representative and then accepted by the general partner.
DPPs are unique to other investments and even have their own tax category (passive). You should be prepared to answer questions about what makes these investments different.
A general partner has
A. an active role and unlimited liability
B. an active role and limited liability
C. an inactive role and unlimited liability
D. an inactive role and limited liability
Answer: A. an active role and unlimited liability
A general partner has an active role in managing the partnership and has unlimited liability. A limited partner has an inactive role and limited liability.
The general partner of an oil and gas developmental program is responsible for all of the following EXCEPT
A. paying the partnership’s expenses
B. managing the partnership
C. providing a bulk of the capital for the partnership
D. accepting new limited partners
Answer: C. providing a bulk of the capital for the partnership
The general partner is responsible for running and making decisions for the partnership. However, the limited partners provide the bulk of the capital.
Which of the following partnerships are limited partners allowed to claim non-recourse debt as a tax deduction?
A. equipment leasing
B. oil and gas wildcatting
C. oil and gas developmental
D. real estate
Answer: D. real estate
Non-recourse debt is available to limited partners in real estate direct participation programs (DPPs) only. Non-recourse debt involves pledging partnerships assets as collateral for a loan, and the limited partners aren’t held personally responsible.